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Over 70 Per Cent Of Office Space Leased By Tech Companies In India

Published Date : 21/05/2015

Despite nearly 20 million sf of space being completed in the region in the first quarter of 2015, vacancy rates remained well under control, increasing by just 0.4 percentage points to 9.9%. In the core markets, demand for office space increased by over 20% year – on – year. The insurance sector was the stand-out performer regionally across APAC in core markets, accounting for over 40% of the major leases inked, with the bulk of the leases signed evident of a flight-to-quality trend.

For the emerging markets, Bengaluru continued to enjoy strong demand from the technology sectors. During the quarter, Oracle inked a 400,000 sf space in the JP Nagar submarket. However, the strong construction environment in Jakarta and other Tier-2 markets in China and India is certainly supporting higher availabilities in those markets and a modest correction in rates.

With the Southeast Asia region on the brink of economic integration, insurers are generally upbeat on this burgeoning region’s prospects. This has been evident in the way office uptake has happened in the last quarter. Of the total office space absorbed, the insurance sector grabbed close to ¼ with 24% of the total pie.

Overall rents in the region remained on an upward trend from the last quarter of 2014.

From a rental standpoint, stronger occupancies are supporting rental gains in financial hubs. In Tokyo, good projects are enjoying a rent premium. Hong Kong is also another example, where rents have started to edge up in Central after languishing for an extended period of time, driven by demand from Mainland brokerages who are backfilling spaces that are being vacated by firms relocating to lower cost submarkets.

Indian Scenario

Classified as ‘emerging markets’ the office leasing market recorded a positive growth across most major cities in India. Unlike the APAC region, the demand driver for office space was clearly the Technology sector recording nearly 70% of the total absorption in Grade A office spaces. India office sector has reported positive activities with a notable rise in the net absorption in the office leasing market in India. There was a total rise of 20% year – on – year in the net absorption of Grade A office space with Bengaluru, Chennai, Kolkata, and Mumbai & Pune showing the most notable increases. The office market saw the strongest growth in Bengaluru with a whopping 500% increase in absorption rate.

Globally, a number of blue-chip tenants are moving to the prime grade development, offering competitive prices with efficient workspaces, along with organic growth.

“The first quarter has seen a trend setting start to the year and the momentum is expected to remain steady. Also, with the change in global outlook towards India, we can look at hitherto, stalled or delayed plans of global companies coming to India materializing. The new positive announcements by the government have helped bring fresh air to the real estate market in India. However, critical aspects like ease of business, land availability and business sustainability and continuity still remains a key concern. There is visibly increased leasing activity and appreciation of rent along with commercial terms. This is likely to continue as demand seems robust,” said Mr. Sanjay Dutt,Executive Managing Directorof Cushman & Wakefield in South Asia.

The total absorption for Grade A properties in office spaces was recorded at 8.5 million square feet in Q1 2015, higher by 20% year on year. Among the total share in absorption, IT/ITes continued to remain the main driver with a share of 69% of total lease space. Bengaluru formed 44% of the total share of absorption. This was followed by service and industrial sectors like BFSI, consulting, engineering & manufacturing which contributed a 15% share in total absorption and play an active role in commercial real estate. Other sectors including FMCG, trading, education, logistics, shipping, travel and tourism contributed a 13% share in the office space leasing. The telecom and healthcare sectors accounted for a meagre 3% of total transaction activity.